Transition to Retirement Pension

Did you know that by using a Transition to Retirement Pension, you could be able to save more for your retirement - without reducing your current income? Why not set up a time to meet with us so we can explore your retirement planning options.

What is Transition to Retirement Pension (TRP)?

A Transition to Retirement Pension (TRP) strategy allows you to withdraw money from your super and can provide a tax-effective income. It can only be commenced when you reach preservation age1.

What are the benefits?

By using this strategy, you could:

  • take advantage of a tax-effective income stream investment while you are still working, and
  • build a bigger retirement nest egg without reducing your current income and lifestyle.

How does it work?

The Transition to Retirement Pension works as follows:
  • you contribute part of your pre-tax salary directly into your super fund
  • you transfer some of your existing super into a Transition to Retirement Pension (TRP), and
  • you use the regular payments from the TRP to replace the salary you’ve contributed into super

By taking these steps, it’s possible to accumulate more money for your retirement, due to a range of potential benefits, including:

  • less tax on contributions, as salary sacrifice super contributions are generally taxed at up to 15%2, rather than at marginal rates of up to 49%3.
  • less tax on investment earnings, as earnings in a TRP are tax-free, whereas earnings in accumulation phase are generally taxed at a maximum rate of 15%, and
  • less tax on income, as the taxable income payments from the TRP will attract a 15% pension offset between your preservation age1 and 59. Also, when you reach age 60, the income stream payments you receive are completely tax-free4 and you don’t have to include these amounts in your annual tax return.

While the magnitude of the tax savings will depend on your particular circumstances, combining salary sacrifice with a TRP could be a powerful pre-retirement strategy. However care should be taken to ensure you do not breach the superannuation contributions cap as this can result in extra tax.

How can I implement the Transition to Retirement Pension (TRP)?

A NAB Financial Planner can help you with this strategy and many others, to ensure you maximise your super, while working towards achieving the retirement that you’ve always wanted.

Request a complimentary financial planning consultation

Or call us on 1300 558 863 from Mon-Fri 9am - 6pm (AEST/ADST).

Important information

1 Preservation age is 55 for those born before 1 July 1960 and will gradually increase to 60 depending on your date of birth. To find out your preservation age, go to ato.gov.au

2 Note that, from 1 July 2012, the effective contributions tax has been doubled from 15% to 30% for certain concessional contributions for those above the $300,000 high income threshold.

3 Includes a Medicare levy and Temporary Budget Repair Levy.

4 Assumes the income stream is commenced from a taxed super fund.

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